On April 17, the California Court of Appeal decided Crosno Construction, Inc. v. Travelers Casualty & Surety Company of America,1 effectively narrowing the scope of enforceable “pay-when-paid” provisions in construction subcontracts to the extent the subcontractor seeks recovery against a general contractor’s payment bond surety. Although the Crosno case involved a public works project, the rationale and holding should apply with equal force to private works projects. Basing the bulk of its decision on the Wm. R. Clarke Corp. v. Safeco Insurance Co.2 case, the court found that an open-ended “pay-when-paid” provision in a subcontract is not enforceable against a subcontractor that seeks to recover on a public works payment bond claim. This article discusses the Crosno decision and the implications for contractors on both sides of the contract moving forward.
Continue Reading California Appeals Court Provides Guidance on ‘Pay-When-Paid’ Provisions in Construction Subcontracts

Connelly Constr. Corp. v. Travelers Cas. & Surety Co. of Am., 2018 U.S. Dist. LEXIS 123009 (E.D. Pa. July 24, 2018).

This post was published in the October 4, 2018 issue of eNews published by National Association of Credit Management (NACM).

The Commonwealth of Pennsylvania Department of General Services undertook a project for the construction of a new maximum security prison facility in Montgomery County, Pennsylvania.  Walsh Heery Joint Venture (“WHJV”) was the prime contractor and it retained Connelly Construction Corporation as its masonry subcontractor.

The prime contract permitted the Commonwealth to withhold retainage from WHJV until completion of the project.  Similarly, the subcontract permitted WHJV to withhold retainage from Connelly in proportion to the retainage held by the Commonwealth.  The subcontract also included a pay-if-paid clause under which Connelly agreed that it was not entitled to payment unless, as an express condition precedent, WHJV was paid by the Commonwealth.

Completion of the project was delayed for more than two years.  As a result, the Commonwealth continued to withhold retainage from WHJV, and WHJV thus withheld more than $200,000 in retainage from Connelly, long after Connelly completed its scope of work.
Continue Reading Federal Court in Pennsylvania Holds Pay-If-Paid Clause Unenforceable Where Prime Contractor’s Inadvertent Delays Contribute to the Owner’s Withholding of Payment

Superior Steel, Inv. v. Ascent at Roebling’s Bridge, LLC, 2017 Ky. LEXIS 511 (December 14, 2017)

Corporex Development and Construction Management, LLC (“Corporex”), a design builder, contracted with Dugan & Meyers Construction Company (“D&M”), a construction manager and general contractor on the Ascent at Roebling’s Bridge (the “Project”), a 21-floor luxury condominium in Covington, Kentucky.
As a cost saving measure, D&M asked Superior Steel, Inc. (“Superior”) to fabricate the steel and to have Ben Hur Construction Company (“Ben Hur”) complete the erection and installation work.  Superior and D&M entered into a fixed price contract for $1,814,000.  In turn, Superior subcontracted with Ben Hur to erect the steel and metal decking for $444,000.  As structured, the payments would flow from Corporex to D&M to Superior.  Superior would then pay Ben Hur.


Continue Reading Kentucky Supreme Court Holds “Pay-if-Paid” Provision in Subcontract Is Valid and Enforceable, Shifting Risk to Subcontractor